On June 27, 2023, the FDA issued its long-awaited draft guidance on activities it considers wholesaling and those that it does not in the context of Section 503B’s prohibition on wholesaling of products compounded by outsourcing facilities.[1] Once finalized, the Guidance will describe how FDA intends to apply the wholesaling prohibitions of Section 503B to outsourcing facilities.
Currently, 503B outsourcing facilities are subject to a fifty-state patchwork whereby some states require they be licensed as a pharmacy (e.g., New York) and other states categorize outsourcing facilities as either wholesalers or manufacturers (e.g., Texas, North Carolina). While 503B outsourcing facilities must label the products they compound with a statement that the drug is not to be resold, 503Bs can engage in large scale compounding without a patient-specific prescription.[2] However, under the Drug Supply Chain Security Act (DSCSA), 503B outsourcing facilities may only compound a drug if the drug will not be sold or transferred by an entity other than the outsourcing facility that compounded the drug. Importantly, this Guidance now explicitly states that this requirement does not prohibit the administration of a drug in a healthcare setting or dispensing a drug pursuant to a prescription.[3]
Throughout the Guidance, FDA stresses that the sale or transfer by a 503B outsourcing facility to a healthcare facility (i.e., hospital or clinic) where administered, or a pharmacy or Federal facility where dispensed pursuant to a prescription, is not engaging in wholesaling. However, the Guidance goes further by stating that it is not wholesaling when “An outsourcing facility distributes a drug it compounded (without obtaining a patient-specific prescription) to a hospital or health system, health clinic, or physician’s office where it is used as office stock to dispense to patients pursuant to prescriptions or to a pharmacy, federal facility, or licensed physician, which subsequently dispenses the drug pursuant to a prescription.” This would suggest that hospital outpatient pharmacies and pharmacies in general can obtain 503B products and can dispense those products to their patients without that being considered a prohibited “resale.”
The Guidance also identifies certain activities the FDA views as being prohibited, including the sale or transfer of compounded products by a 503B outsourcing facility to a wholesale distributor, another 503B outsourcing facility, a manufacturer or repackager/relabeler, or third party entities such as website owners, pharmacies and clinics. With regard to third party entities, the FDA considers it wholesaling when the 503B outsourcing facility does not recoup the costs of the compounded drug directly from the prescribing physicians and instead receives compensation from the third party directly from the proceeds of its bundled services that it charged the prescribing physicians. The Guidance, however, indicates the third party must be actively involved as a seller. For example, a Group Purchasing Organization (GPO), which acts as a broker is excluded from the definition of wholesaling according to the guidance. The FDA states the activities do not constitute wholesaling because GPOs only work on behalf of hospital and health systems, health clinics, and physicians’ offices seeking multiple products produced by outsourcing facilities to facilitate business transactions by finding products based on availability and competitive pricing. Per the Guidance “The GPO does not own drugs, ship drugs, warehouse drugs, handle drugs, or hold drugs. The GPO does not sell or dispose of drugs, does not purchase, or decide to purchase, drugs. GPO members independently decide when and how much (if any) drugs to purchase from the outsourcing facility with which the GPO has an agreement. FDA does not consider this wholesaling since there the GPO has not sold or transferred the drug compounded by the outsourcing facility.”
At the outset of the Guidance, FDA stated “The more attenuated the connection between the outsourcing facility and the patient or prescriber, the more the outsourcing facility resembles a conventional drug manufacturer that distributes drug products to customers without regard to individual patient need.” Therefore, one of the stated purposes of the Guidance is to reduce the risk that manufacturers would forgo seeking FDA approval of their products and instead opt to market unapproved, compounded drugs as an outsourcing facility. FDA further identified the DSCSA exception for 503B compounded drugs (i.e., T3 requirements) and identified the prohibition on wholesaling as an important safeguard against diversion.
Ultimately, there remains much ambiguity regarding the draft Guidance, including the FDA’s somewhat strained view of what constitutes a “sale” or “transfer.” In particular, based on some of the language used, the definitions may not match with industry practice or applicable law.
How Frier Levitt Can Help
FDA is providing until August 28, 2023 for stakeholders to provide comments on the draft. Frier Levitt can prepare comments to address areas in the Guidance in need of clarification or to request changes. Contact us to speak to one of our attorneys in our FDA/DSCSA Practice Group.
[1] FDA Guidance For Industry. Prohibition of Wholesaling Under Section 503(B) of the Federal Food, Drug & Cosmetic Act. CDER. June 2023.
[2] Although they may also accept patient-specific prescriptions.
[3] Sec 503(b) of the Federal, Food, Drug & Cosmetic Act.
